TECHNOLOGICAL INSTITUTE OF THE PHILIPPINES

363 P.CASAL ST. QUIAPO, MANILA

COMPILATIONS
OF ASSIGNMENT IN
ECONOMICS

SALAZAR, LANCE V.
MR. ROMAN LEAÑO JR.
ASSIGNMENT NO.1

1. What is Demand? Demand Schedule?

2. Identify the determinants of demand, explain.

3. Discuss the Ceteris Paribus Assumption.

4. What is the difference between change in demand and change in quantity demanded?

1. In economics, demand is the desire to own anything and the ability to pay for it and
willingness to pay[1] (see also supply and demand). The term demand signifies the
ability or the willingness to buy a particular commodity at a given point of time.

Economists record demand on a demand schedule and plot it on a graph as a demand

curve that is usually downward sloping. The downward slope reflects the relationship
between price and quantity demanded: as price decreases, quantity demanded increases. In
principle, each consumer has a demand curve for any product that he or she would consider
buying, and the consumer's demand curve is equal to the marginal utility (benefit) curve.
When the demand curves of all consumers are added up, the result is the market demand
curve for that product. If there are no externalities, the market demand curve is also equal to
the social utility (benefit) curve.

Demand Schedule>> A demand schedule reflects the quantities of goods and services
demanded at different prices.

2. The business environment is always volatile because it is affected by the supply and
demand of the marketplace. There are many factors that can contribute to the
demand in the market and this demand will likewise also affect the supply. It is
important to look into each of these factors to be able to cope up with changes. One
of the most important determinants of demand is the income of the customer. When
the income of the customer falls then his ability to purchase goods and service is
affected.

Another factor that influences the demand for a product is the prices of related goods. For
example, if the price of an apple falls for one particular season then you can expect the
customers to buy more apples during that time frame even if they are used to buying banana.
In this regard, the banana industry suffers because the customers buy the apples because of
the low price.

Still another determinant of demand is the shifting taste of the market. Sometimes, there are
trends in the market the drives the demand of some products up while sometimes it would
adversely affect the demand in the market. The taste of individuals themselves can reflect on
the overall demand of the market. If some customers prefer chocolate more than coffee then
you can expect the demand of chocolate to be a lot more significant compared to coffee.
Your expectations in the future are also likely to affect the demand for a particular good or
service right now. For example, if you are expecting to earn a lot of money in the near future
then you will most likely be more inclined to spend today. On the other hand, if you expect to
encounter several financial difficulties in the near future then your demand for products and
services then you are likely to save your money right now.

Even the number of buyers in the market has will have an overall effect on the demand
because they will drive up the production of these goods. The prices of these goods will also
be dependent on the demand which is created by the number of buyers.

As you can see, there are many determinants of demand and as a business owner; you should
know each of these determinants individually and thoroughly. This is because you are in an
industry that is highly dependent on the demands of the market. Every business in the world
needs to follow the trends and where the demand in the market is going in order to survive.
The enumerated determinants of demands are just some of the things that will affect the
demand, there are still other factors that may affect the demand more than you though
possible.

3. Cēterīs paribus is a Latin phrase, literally translated as "with other things the same,"
or "all other things being equal or held constant." It is commonly rendered in English as
"all other things being equal." A prediction, or a statement about causal or logical
connections between two states of affairs, is qualified by ceteris paribus in order to
acknowledge, and to rule out, the possibility of other factors that could override the
relationship between the antecedent and the consequent.[1]

A ceteris paribus assumption is often fundamental to the predictive purpose of scientific

inquiry. In order to formulate scientific laws, it is usually necessary to rule out factors which
interfere with examining a specific causal relationship. Under scientific experiments,
the ceteris paribus assumption is realized when a scientist controls for all of the independent
variables other than the one under study, so that the effect of a single independent variable
on the dependent variable can be isolated. By holding all the other relevant factors constant,
a scientist is able to focus on the unique effects of a given factor in a complex causal
situation.

Such assumptions are also relevant to the descriptive purpose of modeling a theory. In such
circumstances, analysts such as physicists, economists, and behavioral psychologists apply
simplifying assumptions in order to devise or explain an analytical framework that does not
necessarily prove cause and effect but is still useful for describing fundamental concepts
within a realm of inquiry.

4. If the price of widgets is originally $1.00 and people are buying 100, they may change
to 90 for two reasons. One reason is that the price may rise to $2.00. The other reason
is that one of the factors that is assumed to be constant may change, so that even
though the price has not changed, quantity will. Economists distinguish these two
cases. In the first case the demand relationship or schedule has not changed, but
there has been movement within the relationship. Economists call a change of this sort
 a change in quantity demanded. The second sort of change is an alteration of the
relationship. The original pairing of price and quantity is destroyed and replaced by a
new pairing. Economists call this sort of change a change in demand.

It is important to realize that though the demand relationship looks concrete when it is
illustrated with a table or graph, in everyday life demand curves are hidden. A demand curve
refers to what people would do if various prices were charged, and very rarely are enough
prices charged so a clear demand curve can be seen. This is not to say that the concept is of
no importance to people who sell. They may not be interested in the demand curve as a
relationship, but they do find it a boundary or constraint on their behavior. If there were an
actual widget seller facing the demand curve in our demand table, he would find that he
could not sell more than 90 widgets if he wanted to charge $2.00. He could of course sell
fewer if he wanted to. He could sell only 70 at $2.00, but if he did this, he would earn far less
than he could. If he wanted to sell more than 90, he would have to lower his price.

CHANGE IN QUANTITY DEMANDED:

A movement along a given demand curve caused by a change in demand price. The only
factor that can cause a change in quantity demanded is price. A related, but distinct, concept
is a change in demand.

A change in quantity demanded is a change in the specific quantity of a good that buyers are
willing and able to buy. This change in quantity demanded is caused by a change in
the demand price. It is illustrated by a movement along a given demand curve.

In fact, the only way to induce a change in quantity demanded is with a change in the price.
Anything else, everything else, causes a change in demand.

As the demand price induces a change in the quantity demanded and a movement along the
demand curve, the five demand determinants (buyers' income, buyers' preferences, other
prices, buyers' expectations, and number of buyers) remain unchanged.
Assignment No.2

Supply (economics)

In economics, supply is the amount of some product producers are willing and able to sell at
a given price all other factors being held constant. Usually, supply is plotted as a supply curve
showing the relationship of price to the amount of product businesses are willing to sell.

Supply schedule

A supply schedule is a table which shows how much one or more firms will be willing to supply
at particular prices.[1] The supply schedule shows the quantity of goods that a supplier would
be willing and able to sell at specific prices under the existing circumstances. Some of the
more important factors affecting supply are the goods own price, the price of related goods,
production costs, technology and expectations of sellers.

Factors affecting supply

 Innumerable factors and circumstances could affect a sellers willingness or ability to

produce and sell a good. Some of the more common factors are:

Goods own price: The basic supply relationship is between the price of a good and the
quantity supplied. Although there is no "Law of Supply", generally, the relationship is positive
or direct meaning that an increase in price will induce and increase in the quantity supplied.[2]

Price of related goods:[2] For purposes of supply analysis related goods refer to goods from
which inputs are derived to be used in the production of the primary good. For example,
Spam is made from pork shoulders and ham. Both are derived from Pigs. Therefore pigs would
be considered a related good to Spam. In this case the relationship would be negative or
inverse. If the price of pigs goes up the supply of Spam would decrease (supply curve shifts up
or in) because the cost of production would have increased. A related good may also be a
good that can be produced with the firm's existing factors of production. For example, a firm
produces leather belts. The firm's managers learn that leather pouches for smartphones are
more profitable than belts. The firm might reduce its production of belts and begin
production of cell phone pouches based on this information. Finally, a change in the price of a
joint product will affect supply. For example beef products and leather are joint products. If
a company runs both a beef processing operation and a tannery an increase in the price of
steaks would mean that more cattle are processed which would increase the supply of
leather.[3]

Technology. Technology is the way inputs are combined to produce a final good. [4]A
technological advance would cause the average cost of production to fall which would be
reflected in an outward shift of the supply curve.[2]

Expectations: Sellers expectations concerning future market condition can directly affect
supply.[5] If the seller believes that the demand for his product will sharply increase in the
foreseeable future the firm owner may immediately increase production in anticipation of
future price increases. The supply curve would shift out. Note that the outward shift of the
supply curve may create the exact condition the seller anticipated, excess demand.[6]

Price of inputs: Inputs include land, labor, energy and raw materials. [7]If the price of inputs
increases the supply curve will shift in as sellers are less willing or able to sell goods at
existing prices. For example, if the price of electricity increased a seller may reduce his
supply because of the increased costs of production. The seller is likely to raise the price the
seller charges for each unit of output.[6]

Government policies and regulations:Government intervention can have a significant effect

on supply.[8] Government intervention can take many forms including environmental and
health regulations, hour and wage laws, taxes, electrical and natural gas rates and zoning and
land use regulations.[9]

 It should be emphasized that this list is not exhaustive. All facts and circumstances
that are relevant to a seller's willingness or ability to produce and sell goods can affect
supply.[10] For example, if the forecast is for snow retail sellers will respond by
increasing their stocks of snow sleds or skis or winter clothing or bread and milk.

Supply function/equation

The supply function is the mathematical expression of the relationship between supply and
those factors that affect the willingness and ability of a supplier to offer goods for sale. For
example, Qs = f( P,⎮ Prg S ) is a supply function where P equals price of the good Prg equals the
price of related goods and S equals the number of producers. The vertical bar means that the
variables to the right are bring held constant. The supply equation is the explicit
mathematical expression of the functional relationship. For example, Qs = 325 + P - 30 Prg +
20S. 325 is y-intercept it is the repository of all non-specified factors that affect demand for
the product. P is the price of the own good. The coefficient is positive following the general
rule that price and quantity supplied are directly related. Prgis the price of a related good.
Typically the relationship is negative because the good is an input or a source of inputs.

Change in Supply

As with demand, economists separate changes in the amount that sellers will sell into two
categories. A change in supply refers to a change in behavior of sellers caused because a
factor held constant has changed. As a result of a change in supply, there is a new
relationship between price and quantity. At each price there will be a new quantity and at
each quantity there will be a new price. A change in quantity supplied refers to a change in
behavior of sellers caused because price has changed. In this case, the relationship between
price and quantity remains unchanged, but a new pair in the list of all possible pairs of price
and quantity has been realized.

Supply curves as well as demand curves appear much more concrete on an economist's graph
than they appear in real markets. A supply curve is mostly potential--what will happen if
certain prices are charged, most of which will never be charged. From the buyer's
perspective, the supply curve has more meaning as a boundary than as a relationship. The
supply curve says that only certain price-quantity pairs will be available to buyers--those lying
to the left of the supply curve.

QUANTITY SUPPLIED

What Does Quantity Supplied Mean?

A term used in economics to describe the amount of goods or services that are supplied at a
given market price. Graphically, the amount of goods or services supplied lies at any point
along the supply curve in a price versus quantity plane. The rate at which the amount
supplied changes in response to changes in prices is called the price elasticity of supply.

Investopedia explains Quantity Supplied

The quantity supplied depends on the price level at any given time in the market. The price
can be set by either a governing body by using price ceilings or floors, or by regular market
forces. If a price ceiling or floor is set, this means there will be a market imperfection, which
will force suppliers to provide a good or service for a noncompetitive price, no matter the
cost of production.

Market Equilibrium

Markets exist in all types of goods and services, and as economists, we are interested in how
they work and what causes them to change.

The market price is determined by the interaction of market supply (producers) and market
demand (consumers).

The point at which the quantity demanded equals the quantity supplied is the equilibrium
point. This point states the price of the good (P1) and the market quantity (Q1).

Assuming that neither curve shifts, then market forces will maintain the equilibrium price.
For instance, assume that the price rises above P1, then the firms will react by wishing to
supply more (the price is higher, therefore, the revenue will be higher), at the same time
consumers will demand less. The outcome is that there is excess supply. In other words,
supply is greater than demand.

This situation results in producers having unsold stocks. In this case, producers will wish to
sell stocks as they cost money to produce and maintain. Therefore, to sell them they will
reduce the price of the good (contraction in supply). The lower price will encourages more
demand for the good (extension in demand). This process continues until the supply and
demand are again in equilibrium.

If the position of either the demand and / or supply curve shifts, then the equilibrium price
and quantity will change. For instance, if the good becomes more fashionable, then the
demand curve will shift from D1 to D2.

The new equilibrium price will be P2.

The Law of Supply

states that at higher prices, producers are willing to offer more products for sale than at
lower prices

states that the supply increases as prices increase and decreases as prices decrease

states that those already in business will try to increase productions as a way of increasing
profits

The Law of Demand

states that people will buy more of a product at a lower price than at a higher price, if
nothing changes

states that at a lower price, more people can afford to buy more goods and more of an item
more frequently, than they can at a higher price

states that at lower prices, people tend to buy some goods as a substitute for others more
expensive

Assignment No.4

Gross national product/capita

These maps show the changing distribution of Gross National Product/capita. Gross National
Product is the total value added from domestic and foreign sources claimed by residents of a
country. In other words it is GDP (Gross Domestic Product, the value of goods and services
produced within a country) plus net income received by residents from non-resident sources.
GNP/capita is the total divided by the number of people in the country. In other words,
GNP/capita is a measure of national income per person.

What the maps suggest

This sequence of maps suggests that the global pattern of national income has remained
remarkably stable in the period 1960-99. There is a below $2 per day region of the world,
including most of Africa and Asia. Then there is a high-income group, with GNP/capita
exceeding $10,000 per year, which includes the industrialized north of the globe and Japan,
primarily the OECD countries. In between, there are the countries of Latin America, some
countries in North and South Africa, and since 1990 (when data becomes available), most of
eastern Europe in a range of middle incomes, with GNP/capita in the range $730 to $10,000.

This stable pattern of income ratios is disrupted primarily by one region. In South East Asia,
the ‘East Asian Miracle’ economies have managed to move out of the $1 per day group and
into the middle income range. The East Asian miracle countries started as a group of four:
South Korea, Taiwan, Hong Kong and Singapore. World Bank (1993) suggests inclusion of
Malaysia, Thailand, Japan, Indonesia. In the 1990s, China is also recorded as making a similar
shift from $1 per day to middle income.

The Data

There are several different ways of comparing GNP/capita. In this set of maps, GNP/capita is
measured in constant 1995 US dollars. This means that national incomes are compared using
foreign exchange rates (rather than the purchasing power of local currency; see also
purchasing power parity). We have a separate presentation looking at GDP/capita measured
using purchasing power parity. Constant dollars means that an attempt has been made to
remove the effects of changes in the value of money from these data. These data come from
the World Bank's World Development Indicators 2001.

Data intervals

The data are plotted using these intervals.

Less than $1 per day ($365 per person each year) is widely used as a global standard of
absolute poverty. (Some problems with the use of GNP/capita as a measure of individual
poverty are noted below). The World Bank says this level is the median of the ten lowest
national poverty lines (World Bank 2001: Box 1.2). It is used here as a graphic indication of
low levels of productivity, and one that is increasingly widely used. The World Bank uses $2
per day as a reflection of poverty lines of lower-middle income countries.

The remaining intervals are arbitrary but recognizable cut off points. For comparison, the
World Bank used these intervals as its categories in its World Development Report 2000:

Low $755 or less

Lower middle $756-2995

Upper middle $2996-9265

High $9,266 or more.

Problems of using GNP/capita as a poverty line

GNP/capita is a measure of average national output. There are at least two kinds of problems
with this as a measure of individual incomes:

1. Problems of measurement. Non-monetized activities may be poorly estimated (eg the

products of peasant agriculture) or excluded (eg domestic work maintaining the
home).

2. Problems of conceptualization. GNP/capita is a simple average of output divided by

number of people. So it does not say anything about the distribution of national
income between rich and poor.

What we can say is that GNP/capita provides a rough estimate of average national
productivity and national productivity sets bounds on average living standards.

Limitations of GDP to judge the health of an economy

GDP is widely used by economists to gauge the health of an economy, as its variations are
relatively quickly identified. However, its value as an indicator for the standard of living is
considered to be limited. Not only that, but if the aim of economic activity is to produce
ecologically sustainable increases in the overall human standard of living, GDP is a perverse
measurement; it treats loss of ecosystem services as a benefit instead of a cost.[21] Other
criticisms of how the GDP is used include:
• Wealth distribution – GDP does not take disparity in incomes between the rich and
poor into account. See income inequality metrics for discussion of a variety of
inequality-based economic measures.

• Non-market transactions – GDP excludes activities that are not provided through the
market, such as household production and volunteer or unpaid services. As a result,
GDP is understated. Unpaid work conducted on Free and Open Source Software (such
as Linux) contribute nothing to GDP, but it was estimated that it would have cost more
than a billion US dollars for a commercial company to develop. Also, if Free and Open
Source Software became identical to its proprietary software counterparts, and the
nation producing the propriety software stops buying proprietary software and
switches to Free and Open Source Software, then the GDP of this nation would reduce,
however there would be no reduction in economic production or standard of living.
The work of New Zealand economist Marilyn Waring has highlighted that if a concerted
attempt to factor in unpaid work were made, then it would in part undo the injustices
of unpaid (and in some cases, slave) labour, and also provide the political
transparency and accountability necessary for democracy. Shedding some doubt on
this claim, however, is the theory that won economist Douglass North the Nobel Prize
in 1993. North argued that the creation and strengthening of the patent system, by
encouraging private invention and enterprise, became the fundamental catalyst
behind the Industrial Revolution in England.

• Underground economy – Official GDP estimates may not take into account the
underground economy, in which transactions contributing to production, such as illegal
trade and tax-avoiding activities, are unreported, causing GDP to be underestimated.

• Non-monetary economy – GDP omits economies where no money comes into play at
all, resulting in inaccurate or abnormally low GDP figures. For example, in countries
with major business transactions occurring informally, portions of local economy are
not easily registered. Bartering may be more prominent than the use of money, even
extending to services (I helped you build your house ten years ago, so now you help
me).

• GDP also ignores subsistence production.

• Quality improvements and inclusion of new products – By not adjusting for quality
improvements and new products, GDP understates true economic growth. For
instance, although computers today are less expensive and more powerful than
computers from the past, GDP treats them as the same products by only accounting
for the monetary value. The introduction of new products is also difficult to measure
accurately and is not reflected in GDP despite the fact that it may increase the
standard of living. For example, even the richest person from 1900 could not purchase
standard products, such as antibiotics and cell phones, that an average consumer can
buy today, since such modern conveniences did not exist back then.
• What is being produced – GDP counts work that produces no net change or that
results from repairing harm. For example, rebuilding after a natural disaster or war
may produce a considerable amount of economic activity and thus boost GDP. The
economic value of health care is another classic example—it may raise GDP if many
people are sick and they are receiving expensive treatment, but it is not a desirable
situation. Alternative economic estimates, such as the standard of living or
discretionary income per capita try to measure the human utility of economic activity.
See uneconomic growth.

• Externalities – GDP ignores externalities or economic bads such as damage to the

environment. By counting goods which increase utility but not deducting bads or
accounting for the negative effects of higher production, such as more pollution, GDP
is overstating economic welfare. The Genuine Progress Indicator is thus proposed by
ecological economists and green economists as a substitute for GDP, supposing a
consensus on relevant data to measure "progress". In countries highly dependent on
resource extraction or with high ecological footprints the disparities between GDP and
GPI can be very large, indicating ecological overshoot. Some environmental costs, such
as cleaning up oil spills are included in GDP.

• Sustainability of growth – GDP is not a tool of economic projections, which would

make it subjective, it is just a measurement of economic activity. That is why it does
not measure what is considered the sustainability of growth. A country may achieve a
temporarily high GDP by over-exploiting natural resources or by misallocating
investment. For example, the large deposits of phosphates gave the people of Nauru
one of the highest per capita incomes on earth, but since 1989 their standard of living
has declined sharply as the supply has run out. Oil-rich states can sustain high GDPs
without industrializing, but this high level would no longer be sustainable if the oil
runs out. Economies experiencing an economic bubble, such as a housing bubble or
stock bubble, or a low private-saving rate tend to appear to grow faster owing to
higher consumption, mortgaging their futures for present growth. Economic growth at
the expense of environmental degradation can end up costing dearly to clean up.

• One main problem in estimating GDP growth over time is that the purchasing power of
money varies in different proportion for different goods, so when the GDP figure is
deflated over time, GDP growth can vary greatly depending on the basket of goods
used and the relative proportions used to deflate the GDP figure. For example, in the
past 80 years the GDP per capita of the United States if measured by purchasing power
of potatoes, did not grow significantly. But if it is measured by the purchasing power
of eggs, it grew several times. For this reason, economists comparing multiple
countries usually use a varied basket of goods.

• Cross-border comparisons of GDP can be inaccurate as they do not take into account
local differences in the quality of goods, even when adjusted for purchasing power
parity. This type of adjustment to an exchange rate is controversial because of the
difficulties of finding comparable baskets of goods to compare purchasing power
 across countries. For instance, people in country A may consume the same number of
locally produced apples as in country B, but apples in country A are of a more tasty
variety. This difference in material well being will not show up in GDP statistics. This
is especially true for goods that are not traded globally, such as housing.

• Transfer pricing on cross-border trades between associated companies may distort

import and export measures[citation needed].

• As a measure of actual sale prices, GDP does not capture the economic surplus
between the price paid and subjective value received, and can therefore
underestimate aggregate utility.

Simon Kuznets in his very first report to the US Congress in 1934 said:[22]

...the welfare of a nation can, therefore, scarcely be inferred from a measure of national
income...

In 1962, Kuznets stated:[23]

Distinctions must be kept in mind between quantity and quality of growth, between costs and
returns, and between the short and long run. Goals for more growth should specify more
growth of what and for what.

Tools for Measuring National Income

1.

There are many tools that help economists track economic growth and changes at various
national levels.

Economists use a number of different tools for measuring and estimating a nation's income.
Choosing the appropriate tool depends on what the economist is trying to show, as well as on
the available data. On occasion, there may be discrepancies between these tools because of
differences in data-collection and data-analysis. However, these tools all give a general idea
of a nation's income--which, when divided by the nation's population, is a good indicator of
per-capita economic activity.

Gross National Income/Gross Domestic Product

2. "Gross National Income" (GNI) is a new term for what was previously called "Gross
Domestic Product" (GDP).

A nation's GNI is made up of the total value of goods and services it produces added to
the value of income received from other nations. To calculate the GNI, the total
number of payments made to foreign nations is deducted from production and income.

Gross National Product

 3. Gross National Product (GNP) is another tool used to measure national income. GNP is
the total value of goods and services a nation produces over a particular time period.
It does not include income from foreign sources and does not deduct payments to
foreign sources. However, it does allow for depreciation and indirect business taxes,
such as sales or property tax.

Net National Income

4. Net National Income (NNI) adds the value of all net primary incomes, both personal
and business, over all of a nation's economic sectors over a given period of time. NNI is
usually calculated on an annual basis by deducting the consumption of fixed capital
resources at market prices from the GNI. They also include calculations for income and
expenses from foreign sources and for the deduction of income from taxation, such as
sales, VAT, or import duties and taxes.